Personal & Bank Guarantees on Commercial Leases

A personal guarantee on a commercial lease is a director or owner promising to pay if the tenant company defaults. A bank guarantee is a financial instrument issued by the tenant’s bank that the landlord can call on for unpaid rent or other losses. We act for tenants, landlords, and guarantors on both, across Australia.

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Almost every commercial lease asks for some form of security. The choices are personal guarantee, bank guarantee, security deposit, or a combination. The form of the security and the words around it decide who’s exposed and how much. Our commercial lease lawyers negotiate and document guarantees across all lease types.

What landlords typically ask for

Personal guarantee - usually from each director of a corporate tenant. The director becomes personally liable for the tenant’s obligations under the lease.
Bank guarantee - typically three to six months’ rent, drawn down by the landlord without notice if the tenant defaults.
Security deposit - cash held by the landlord, applied against unpaid rent or damage.
Director indemnity - a separate indemnity from the director, often broader than a guarantee.

Larger landlords usually want the bank guarantee plus director guarantees. Smaller landlords often ask for both a bank guarantee and a deposit. We negotiate what’s actually needed.

Personal guarantees: what tenants need to know

A personal guarantee is one of the highest-stakes parts of a commercial lease. If signed without negotiation, the director can stay liable for years of rent, outgoings, make good, and the landlord’s legal costs, even after the company collapses or the lease is assigned.

What we negotiate for tenants:

Cap on the guarantee - limit the dollar amount and the categories of loss
Time limit - guarantee ends a defined period after the lease ends, not indefinitely
Release on assignment - guarantee falls away if the lease is assigned to a credit-worthy assignee (see lease termination for exit routes)
Joint and several relief - clarify how multiple guarantors share the load
Carve out for variations - guarantee doesn’t extend to variations the guarantor didn’t approve
Notice requirements - landlord must call on the company first before chasing the guarantor

Some retail leases Acts also help. Victoria’s Retail Leases Act 2003, for example, gives an outgoing tenant a statutory release in some circumstances on assignment as part of a sale of business. Getting the guarantee right at the lease drafting stage is the most effective protection.

Bank guarantees: how they work

A bank guarantee is an unconditional undertaking from the tenant’s bank to pay the landlord on demand, up to a defined amount. The tenant pays the bank a fee and usually has to provide security to the bank for the same amount.

Key points:

The bank pays without arguing the merits when the landlord calls on it
The tenant gets the money back from the bank only after the bank guarantee is returned
The form of the bank guarantee matters: most leases require an unconditional, on-demand guarantee from a major Australian bank
Bank guarantees are usually returned when the lease ends and the make good is complete

We see disputes most often around two issues: when the landlord can call on the guarantee, and when the landlord must return it.

When the bank guarantee can be called on

The lease usually says. Common triggers:

Rent arrears beyond a defined cure period
Outgoings arrears
Failure to make good at end of lease
Any other breach of the lease

The trigger needs to be exercised properly. A premature or excessive call exposes the landlord to a claim and can lock up the tenant’s bank security.

When the bank guarantee must be returned

At the end of the lease, once all obligations have been performed (including make good). The landlord can’t keep it indefinitely.

Disputes about return are common: the landlord holds onto the guarantee citing make good or other claims, and the tenant disputes the basis. We pursue and defend these on both sides.

Common issues we fix

Personal guarantees with no cap or release point
Personal guarantees that survive assignment, leaving the original director exposed for years
Bank guarantees called on without a valid breach
Bank guarantees not returned at the end of the lease
Security deposit applied against disputed claims
Director indemnities written so broadly they cover liabilities the director didn’t expect. Our lease disputes team acts on guarantee enforcement and defence
Multiple guarantors held jointly and severally liable for the full amount

Frequently asked questions

Can I refuse to give a personal guarantee?

You can try, but most landlords will insist. The realistic move is to negotiate the scope: cap the amount, add a release on assignment, exclude certain liabilities, and require the landlord to chase the company first.

What’s the difference between a personal guarantee and an indemnity?

A guarantee makes you secondarily liable (the company is the primary obligor; you pay if it doesn’t). An indemnity makes you primarily liable. Indemnities are broader and harder to escape. We push back on indemnities where we can.

Can the landlord chase me if I leave the company?

Generally yes, unless your guarantee says otherwise or you’ve negotiated a release. Resigning as a director doesn’t release the personal guarantee.

How much is a normal bank guarantee?

Three to six months’ rent is standard. Higher in some shopping centres and lower for stronger tenants. The amount is negotiable.

When does the landlord have to return the bank guarantee?

After the lease ends and the tenant has performed all its obligations, including make good. The lease will set the timing, but it should be a defined period after handback, not indefinite.

What happens if the bank guarantee is wrongly called on?

The bank still pays (that’s the nature of an unconditional guarantee). The tenant’s remedy is to recover from the landlord, by negotiation or court action. We’ve run these claims on both sides.

Can I substitute a bank guarantee for a personal guarantee?

Sometimes. A higher bank guarantee can be offered in place of a personal guarantee, particularly for stronger tenants. The landlord doesn’t have to accept it but often will.

How much does guarantee advice cost?

Fixed fee on review and negotiation. Disputes scoped in stages. Send us the lease and the guarantee documents and we’ll come back with a quote within one business day.

Talk to a guarantee lawyer

Whether you’re being asked to sign a personal guarantee, calling on a bank guarantee, or trying to get one back, get advice before you act.